Top Ten Tips Disclaimer
The Texas Workforce Commission is charged with auditing businesses to ensure that employee wages are properly reported and appropriate taxes paid on such wages. If TWC rules that an employer has failed to properly report all wages and pay taxes, it will assess back taxes and interest. Non-payment of taxes leads TWC to inform the Internal Revenue Service that the non-paying employer is not entitled to the federal tax credit with respect to the wages in question, which in turn can lead to an IRS audit. Finally, since TWC conducts a cross-match of its wage reports with the new hire database of the Child Support Division of the Texas Attorney General’s office, an employer that is found to have misclassified a new hire as a non-employee and failed to report the new hire may be liable for a $25 per employee penalty for violating the new hire reporting law (see “New Hire Reporting Laws” in this book for further details).
A TWC audit generally begins in one of four different ways. First, a former worker may file an unemployment claim. If no wages were reported for that claimant by the employer, the claim may be disallowed, in which case the claimant will probably appeal. The Tax Department will investigate, and such an audit has the highest priority. Second, a competitor or someone else may report that an employer is misclassifying its workers. The Tax Department will audit the employer's entire workforce and will hold the source of its information confidential. Third, TWC may perform a random audit of the employer as part of its goal of auditing 2% of all businesses every year. Fourth, TWC may decide to target a specific industry or geographical area. For instance, the hair salon industry was targeted in that way back in the late 1980s due to a high number of reports both from within the industry and from ex-workers.
For more detail on the subject of TWC tax audits, click here.
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